Digital transformation is the never-ending story of telecoms but the arrival of 5G provides communication service providers (CSPs) with a lever to ease their way into the digital economy. George Malim explores whether the current phase is introducing a step change in CSPs’ fortunes?
Telecoms faces an adapt-or-die scenario with digital transformation less of an option and more of an imperative. “CSPs will need to do this in order to grow,” says Martin Morgan, the head of Digital Marketing at Qvantel. “In the past five years from 2017 to late 2022, telecoms revenues only grew up 3%. Which although not great, isn’t really surprising given that many were basically selling a commodity. With 5G and in particular the arrival of 5G standalone, CSPs can manage the characteristics of the delivery network for digital services. By managing speed and latency they can also manage the end users’ experience. Which means suddenly CSPs become a very attractive business partner for any company selling digital services. CSPs can now sell experiences to their end customers as well as assurance to their customers and partners, which is a long way from selling a commodity.”
They’ll have to stop thinking like an old telco, though, if they are to reap the benefits. “CSPs will need to develop 5G in a way that takes them beyond connectivity if they want to remain competitive in the industry,” confirms Lee Carter, the networking director at Dell Technologies UK. “CSPs need to transform; they are all on their own digital transformation journeys and at Dell, we are working with several providers at the moment to help them monetise and capitalise the opportunities available to them across all verticals.”
John Burton, the chief executive of MDS Global agrees: “CSPs are losing out to digital service providers like Facebook, Netflix and Amazon,” he says. “These brands have unique strengths that appeal to consumers. CSPs must therefore find ways to replicate the value these brands are known for in terms of content and/or marketplace platforms that consumers want. To tackle the problem, CSPs need first the high degree of flexibility in charging and support models and second, the ability to automate processes to ensure that what may be relatively small value streams – but millions of them – do not tie up resources.”
“In my opinion, the biggest area of opportunity will be in enterprise where providers can fuse together connectivity with edge computing to drive a business benefit beyond just connectivity,” he adds. “But to do this, telcos need to revise their charging models to include ‘thing value-based pricing’ or even ‘surge and demand-based pricing’.”
More than 5G
This isn’t only a 5G world. “5G is a bit of a closed club; only effectively open for those that have licensed 5G spectrum – those CSPs in the fixed communications segment have no real way to benefit from 5G,” explains Colin Evans, the senior director for business development in the Global Service Provider business of Juniper Networks. “One exception to that is private 5G, which is a complete discussion in its own right. 5G also delivers a new architectural platform to enable new revenue generating services on top of the connectivity, along with the ability to realise value-added capabilities such as network slicing to guarantee network performance – with service level agreements (SLAs) for certain customers or applications.”
The challenge is to invest in transformation while funding it through monetising new services or monetising existing services more effectively. “CSPs can be successful in many areas in addition to connectivity,” confirms Carter. “If we take manufacturing as an example, CSPs can work with this industry to understand how best to increase productivity and increase yields in terms of smart factories and using technologies such as predictive maintenance, or computer vision to help augment health and safety on factory floors. But for these technologies to be feasible, there must be high-performance connectivity at the edge. 5G private mobile networks are key to this and important for deploying compute and storage closer to those workloads on the factory floor. Most importantly, this needs to be done securely which is why we are focused on creating secure ecosystems for those CSPs looking to modernise and create services at the edge. This idea can be extended to any industry, both private and public.”
“As CSPs move beyond simple connectivity, a plethora of cloud services certainly represent an area to grow revenues, add value to existing connectivity services and differentiate versus competitors,” says Evans. “The question remains, what are those services and do CSPs deliver them themselves, or provide a platform to enable them to be delivered by others, or partner with others to build and deliver services, maybe using a revenue sharing model? The most lucrative portion of the market is most likely to be managed services for large and small/medium enterprise customers – as individual end-user services will most likely gravitate to over-the-top (OTT) models.”
Escape from infrastructure
Even if CSPs automate, virtualise, streamline processes and enable cross-domain integration will they be able to escape the infrastructure business and become digital service providers?
“Only if they create the service beyond infrastructure,” says Burton. “They could sell someone else’s service but then they are acting as a conduit with limited option to add value, and therefore only gaining negligible distribution margin. EU telcos coming together to build a platform with enhanced trust, via opt-in is a good example of where the industry will head in terms of moving away from metered charging models. At the heart of this model are flexible billing solutions that can be spun up quickly in response to market changes. That will be crucial in this new world and for that you ideally need a cloud-based solution to scale up and down and automate and innovate.”
CSPs shouldn’t be looking to escape from connectivity provision. “CSPs should not typically aim to exit their connectivity business,” says Evans. “On the contrary, they should see it as an advantage or differentiator; but to drive growth and future profitability, they should consider it as an overlay on top of connectivity, a portfolio of value-added services. So, the answer will be both delivering and optimising costs related to their infrastructure and delivering and partnering around value-added services. Hence, escape is probably the wrong way to look at it – complement would be a more useful perspective.”
Nevertheless, there is a finite amount of skills and resources that CSPs can bring to new markets. “Legacy systems and trying to re-engineer square pegs into round holes present significant barriers for CSPs,” says Morgan. “It’s not easy and many reengineering efforts end up in failure. With 5G, CSPs are putting in a new radio network and a new 5G core. They should also add a new BSS and monetisation stack to support 5G. This would be a totally separate system to their legacy stack.”
For Larry Socher, the senior vice president of Strategy and Alliances at Eseye The most significant challenge that faces CSPs is the need for IoT device expertise, interoperability, and the increased threat from hyper scalers. “For years, experts have warned that the traditional mobile network operator (MNO) model, based on branded, proprietary SIMs, is not sustainable,” he explains. “With the replacement of branded SIMs in favour of eSIMs, it’s becoming increasingly more work for MNOs to lock customers in, significantly impacting the IoT market. We expect this to catalyse a seismic change in the IoT market in 2023.”
IoT is only one potential string to CSPs’ transformation bows and some foresee CSPs striving to complete their transformations. “Unless there is equal focus on BSS/OSS and the network, businesses will not be sufficiently agile and flexible to monetise the network investment,” says Burton. “It needs a dedicated focused strategy, and it needs to be measurable.”
Maintaining focus and measuring success are at the heart of digital transformation and CSPs have learnt from past mistakes. “We have worked with some very innovative service providers who set out at the start of their transformation strategies to move from telecoms operators to digital operators,” says Morgan. “The result is that they are now supplying a vast range of content ranging from education to entertainment to healthcare. The results are that these companies are growing faster than ever. The main reason why these digital transformations changed these operators is because digital transformation wasn’t just a project or an initiative, it was core to the companies’ strategies.”
Comment on this article below or via X: @VanillaPlus OR @jcvplus
